All In All, Illinois Brick Won’t Be Another Brick In The Wall Against Indirect Purchaser Suits In Canada

The Supreme Court of Canada has decided not to import the U.S. bar to antitrust damage suits by indirect purchasers, rejecting the rule adopted by the U.S. Supreme Court in the landmark case of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

In three antitrust cases, the Canadian Supreme Court held that indirect purchasers could bring class actions seeking damages sustained as a result of overcharges passed on to them through the chain of distribution.  In the main case, Pro-Sys Consultants Ltd. v. Microsoft Corp., the court rejected Microsoft’s argument that Canada should follow the U.S. Supreme Court’s decision in Illinois Brick, which generally bars antitrust plaintiffs from basing damages on illegal overcharges that were passed on to them by parties that directly purchased products from the defendants.

The argument that only direct purchasers of defendants should have standing to seek antitrust damages has been used offensively and defensively in cases.  Both U.S. and Canadian courts have rejected the use of passing on overcharges as a defense against claims by direct purchasers.  The passing-on defense would have prevented direct purchasers from suing because they passed on the overcharges to their customers and thus had no claim to any actual damages.  In Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968), the U.S. Supreme Court rejected this defense due to the difficulty posed in determining the nature and extent of the overcharges that direct purchasers passed on to their customers.  In its Illinois Brick decision, the U.S. Supreme Court extended the rationale of Hanover Shoe, and held that indirect purchasers should generally be barred from seeking to recover illegal overcharges that had been passed on to them.

In Pro-Sys Consultants Ltd. v. Microsoft Corp., however, the Canadian Supreme Court rejected Microsoft’s argument that it should follow Illinois Brick, and hold that indirect purchasers should be barred from seeking damages based on passed-on overcharges.  Microsoft argued that permitting indirect purchasers to sue for overcharges that were passed on to them would leave it exposed to recoveries in which both direct and indirect purchasers could recover the entire amount of the overcharges.  In Illinois Brick the Supreme Court cited this risk of multiple recoveries as one of its bases in disallowing indirect purchaser claims.  The Canadian Court, rejected this argument, and stated that if a defendant presented evidence of other similar suits in the same or other jurisdictions, a court could easily avoid such risks by dismissing the claim or by modifying any recovery, thus preventing any overlapping damage awards.

Microsoft also claimed that any attempt to trace the overcharges to indirect purchasers was too remote and complex to allow indirect purchasers to seek damages based on passed-on overcharges.  The Canadian Supreme Court also rejected this argument, noting that most antitrust cases are complex.  The Canadian Court reasoned that even though a damages calculation may not be exact, under the law it is enough as long as a plaintiff’s evidence shows “the extent of the damages as a matter of just and reasonable inference.”

Although Microsoft did not raise the issue, the Canadian Supreme Court also addressed the Illinois Brick holding that permitting damage suits by indirect purchasers would frustrate the deterrence objectives of competition laws. The Canadian Court held that since there was a strong possibility that direct purchasers would be reticent to sue overcharging parties because such a suit could threaten their business relationships, in some cases indirect purchasers would be the only parties likely to sue and promote deterrence.

Finally, the Canadian Supreme Court held that allowing indirect purchasers to sue could award compensation to the parties who were actually harmed when the direct purchasers passed on the unlawful overcharges.